Public Disclosure Copy The World Bank Implementation Status & Results Report Second Private Sector Competitiveness and Economic Diversification Prj (P144933) Second Private Sector Competitiveness and Economic Diversification Prj (P144933) AFRICA | Lesotho | Trade & Competitiveness Global Practice | IBRD/IDA | Investment Project Financing | FY 2014 | Seq No: 8 | ARCHIVED on 11-Apr-2017 | ISR27481 | Implementing Agencies: Key Dates Key Project Dates Bank Approval Date:31-Oct-2013 Effectiveness Date:09-Jan-2014 Planned Mid Term Review Date:29-Feb-2016 Actual Mid-Term Review Date:08-Feb-2016 Original Closing Date:30-Apr-2019 Revised Closing Date:30-Jun-2022 Project Development Objectives Project Development Objective (from Project Appraisal Document) The development objective of the proposed project is to contribute to the development of selected non-textile sectors resulting in increased private sector investment, firm growth and job creation. Has the Project Development Objective been changed since Board Approval of the Project Objective? Yes Board Approved Revised Project Development Objective (If project is formally restructured)PHRPDODEL To improve the business environment for firms, strengthen select government institutions, and further diversify the economy. Components Name Improving the Business Environment:(Cost $5.13 M) Supporting Economic Diversification:(Cost $5.69 M) Project Implementation:(Cost $2.58 M) Overall Ratings Name Previous Rating Current Rating Progress towards achievement of PDO  Satisfactory  Satisfactory Overall Implementation Progress (IP)  Satisfactory  Satisfactory Overall Risk Rating  Substantial  Substantial 4/11/2017 Page 1 of 9 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Second Private Sector Competitiveness and Economic Diversification Prj (P144933) Implementation Status and Key Decisions An IDA Implementation Support Mission was conducted in early February 2017 to review the implementation progress of the PSCEDP-II, conduct Negotiations for the Additional Financing to the Project (officially approved by the World Bank Board of Directors on March 24th), and collaborate with the African Development Bank (AfDB) on the recently approved Economic Diversification Support Project (EDSP). This review is based on the outcomes of that mission. The mission assessed implementation of Project activities to be satisfactory, with some activities experiencing faster progress than others. Progress towards the new Project Development Objective, “to improve the business environment for firms, strengthen select government institutions, and further diversify the economy,” was assessed to be satisfactory. The Project comprises three components, namely: - Improving the business climate - Supporting economic diversification - Project implementation support COMPONENT 1: IMPROVING THE BUSINESS CLIMATE Component 1 supports efforts to reduce the time and cost associated with doing business, increase access to finance, and strengthen select government institutions. Activities under this component contribute to reforms that support private sector development (PDO indicator #1) in five of the Doing Business indicators: starting a business, obtaining construction permits, getting credit, resolving insolvency, and trading across borders. They also contribute to increases in satisfaction with select government to business services (PDO indicator # 2) by helping strengthen the One Stop Business Facilitation Center (OBFC) and supporting efficiency improvements in Customs operations. Component 1 activities partially support the diversification of the economy (PDO # 3), as jobs in the horticulture and handicraft sectors ought to increase with improved access to finance and a better operating environment for firms. Progress on the activities in this component includes: - Under business regulation, licensing, and inspections reform (Subcomponent 1A): (i) The Business Licensing and Registration Bill was submitted to the Attorney General for review. The draft bill simplifies the existing trade licensing regime by prescribing a risk-based framework for trade licensing. The online business registration system was launched in December 2014 and significant progress has been made in fully automating it as an electronic portal for licenses and moving towards an e- payment system. The Ministry of Trade & Industry is finalizing a merchant agreement with Nedbank to begin piloting e-payments and the services of a software vendor have been retained to configure the system. (ii) Strengthening of the OBFC and improving business inspections reform are new activities under the additional financing and will begin implementation upon effectiveness. • Under construction permit reform (Subcomponent 1B): (ii) Implementation of some of the construction permit reform recommendations is underway. Maseru City Council (MCC) has fully migrated to the automated construction permit system and is no longer accepting manual applications. So far, 30% of Maseru architects have used the system, reporting both cost and time savings. Various operational forms have been redesigned and are incorporated into the IT platform. MCC reorganized its Department of Planning such that construction permits is now its own business unit, and physically moved to a new space with greater connectivity. After a detailed legal review, consensus was reached on the need to amend the Town & Country Planning Law and the Building Control Law to align them with construction permit reform. Drafting of the environmental impact assessments regulations is progressing slower than expected. - Under access to finance (Subcomponent 1C): 4/11/2017 Page 2 of 9 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Second Private Sector Competitiveness and Economic Diversification Prj (P144933) (i) Lesotho’s credit bureau coverage now extends to 7.1% of the adult population, with one credit bureau operational since December 2014. Efforts are underway to strengthen the supervisory capacity of the Central Bank of Lesotho (CBL) on credit reporting, improve the quality of the data collected (by matching consumer ID and Passport numbers and sharing data with South Africa), and increase public awareness. (ii) The draft Security Interest in Movable Property Bill has undergone extensive revisions following its presentation to the Technical Working Group led by the CBL. Revisions are ongoing. A beta version of the Collateral Registry system has been presented to the Group and is expected to be finalized once the Act and its implementing regulations have been enacted. (iii) On leasing, over the last year, fifty-three representatives of banks and other stakeholders received hands on training on how to price and structure leasing transactions. A review and recommendations draft paper was circulated amongst stakeholders in Maseru, with the proposal to create fiscal advantages for lessors by transferring the benefits of capital allowances from the lessee to the lessor. Given this is contrary to best practices, it was agreed a review note would be prepared to inform the Government’s Tax Policy Committee and the CBL. (iv) On insolvency reform, a draft bill was finalized by the Office of Parliamentary Counsel and key stakeholders, and circulated for further review. It did not include comments from the Master of the High Court, despite the latter’s role in enforcing the legislation once it is passed. (v) Strengthening of the Office of the Parliamentary Council is a new activity under the additional financing and will begin implementation upon effectiveness. - Under Trade Facilitation and Logistics (Subcomponent 1D) (i) Trade facilitation and logistics is a new subcomponent under the additional financing that seeks to (i) improve, upgrade and extend customs; and (ii) develop an electronic single window that connects select government agencies. Meetings have been held between the Lesotho Revenue Authority (which is in charge of customs) and the Project to develop a work plan and a corresponding procurement plan. COMPONENT 2: SUPPORTING ECONOMIC DIVERSIFICATION Component 2 supports efforts to strengthen the competitiveness of new growth sectors and further diversify the economy. Activities under this component contribute to jobs in the horticulture and handicrafts sectors (PDO indicator #3). They do this by supporting investment promotion and facilitating linkages to the local economy; strengthening the demand for and the quality of local handicrafts; supporting the construction and management of a Tourism and Handicraft Information Center; developing the fresh fruit value chain and leveraging the private sector to scale-up production; and helping firms access business development services, technology, and equipment. Progress on the activities in this component includes: - Under supporting investment promotion and increasing linkages to the local economy (Subcomponent 2A) (i) The pre-feasibility study on the pilot commercialization of industrial estates revealed a number of options related to improving the operational efficiency of the Lesotho National Development Corporation (LNDC). To that end, a review of the mandates and organisational structure of LNDC is being carried out. Recommendations and options for a path forward were presented to stakeholders in March 2017. An implementation plan will be formulated as soon as the preferred restructuring option has been selected. (ii) On investment promotion and linkages, LNDC conducted a study tour in October 2016 to explore the Mauritian model of investment promotion, investment facilitation, export promotion and aftercare services. Separately, a study of investment incentives with recommendations to improve the effectiveness of Lesotho’s current incentives schemes was delivered in late 2016. A preliminary scoping of opportunities for local supplier development (linkages) has begun. - Under tourism and handicrafts (Subcomponent 2B) 4/11/2017 Page 3 of 9 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Second Private Sector Competitiveness and Economic Diversification Prj (P144933) (i) On tourism, the Star Grading criteria for all four accommodations categories was amended based on stakeholder consultations and officially relaunched. Consultation sessions with MTEC and LTDC have yielded a harmonized set of accommodations category definitions and minimum requirements for the licensing and grading processes. In November 2016, training was provided to the assessors and licensing officers to acquaint them with the new category definitions, minimum requirements, and criteria. Emphasis will now be placed on marketing the program and increasing the number and capacity of assessors. The instructions for drafting the new Tourism Enterprises Bill are ready for submission to the Parliamentary Counsel. Actual drafting may be put on hold until the country’s tourism policy and masterplan are reviewed. Data on international arrivals is being collected at the border posts and will be uploaded into the online tourism statistics database in May 2017 (4,600 surveys had been completed by January 2017). (ii) On handicrafts, a comprehensive market-based training program for the handicrafts sector was implemented through the Creative Industries Empowerment Program (CIEP). Following improvement of design practices, activities will now focus on economic viability and business practices. For the Tourism Information and Handicraft Center, an architectural competition for the high-level design of the Centre did not yield good results and the procurement process has since been relaunched. - Under horticulture (Subcomponent 2C), the Likhothola Fruit Farm Company (LFFC) and pilot sites remain GLOBAL GAP certified. A horticulture manager was appointed on February 1, 2017 and has taken over the managerial responsibilities for the subcomponent. The analysis of economic and financial returns is ongoing. The latter will inform the exit strategy for the farms and serve to better target and inform investors. An Investor Day was held in November 2016, with government, and international and local investors present. An attractive brand and packaging for fresh produce is being used. Demand from supermarkets exceeds supply and revenues from the current harvest season are 5 times those of last year, which were significantly impacted by drought: M 432,000 (USD $33,590) versus M 79,260. The business plan for the pilot nursery is ready for review. The Additional Financing includes significant support to scale-up activities and commence new ones. The latter include, among others, (i) upgrading the current irrigation system; (ii) developing and implementing a marketing and distribution strategy, a capacity building program for international quality and standards, and an investment promotion program; (iii) establishing a research and training center; (iv) and supporting financial institutions to increase their familiarity with the fresh fruit sector. - Under the Lesotho Enterprise Assistance Program (LEAP, Subcomponent 2D), 139 matching grants (to 124 companies and 15 associations) totaling US$ 162,060 had been approved as of January 2017. The average approved grant size remained USD $1,035. Marketing has commenced regarding the widening of LEAP funding to include equipment, which should translate into an increase in number of applications and amount per application. COMPONENT 3: PROJECT IMPLEMENTATION SUPPORT The Project Management Unit (PMU) is fully staffed and has been instrumental in facilitating the implementation of the Project, in conjunction with various beneficiary agencies. PMU capacity will be strengthened to accommodate the implementation of the AfDB Economic Diversification Support Project. There have been six Project Steering Committee meetings since effectiveness, and presentations are regularly made to representatives of the private sector regarding the progress of the Project. The progress and implementation of the Environmental and Social Management Framework for the commercial horticulture subcomponent was reviewed, including the processes associated with land pooling during the first and second phases of the Project. Social safeguards performance was found to be satisfactory and measures were put in place to ensure risks associated with the scale-up of commercial horticulture are mitigated. Risks Systematic Operations Risk-rating Tool 4/11/2017 Page 4 of 9 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Second Private Sector Competitiveness and Economic Diversification Prj (P144933) Risk Category Rating at Approval Previous Rating Current Rating Political and Governance  --  High  High Macroeconomic  --  High  High Sector Strategies and Policies  --  Low  Low Technical Design of Project or Program  --  Low  Low Institutional Capacity for Implementation and Sustainability  --  Moderate  Moderate Fiduciary  --  Low  Low Environment and Social  --  Low  Low Stakeholders  --  Moderate  Moderate Other  --  --  -- Overall  --  Substantial  Substantial Results Project Development Objective Indicators PHINDPDOTBL  Implemented reforms supporting private sector development (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 2.00 2.00 5.00 Date 31-Dec-2013 31-Dec-2016 31-Dec-2016 31-Dec-2021 PHINDPDOTBL  Client satisfaction with selected government-to-business services (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 -- 0.00 0.00 Date 05-Apr-2017 -- -- 30-Jun-2022 Comments Baseline needs to be defined. 4/11/2017 Page 5 of 9 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Second Private Sector Competitiveness and Economic Diversification Prj (P144933) PHINDPDOTBL  Jobs in the horticulture and handicraft sectors (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 1,160.00 1,160.00 1,160.00 1,315.00 Date 31-Dec-2016 31-Dec-2016 31-Dec-2016 30-Jun-2022 PHINDPDOTBL  Direct project beneficiaries (Number, Core) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 110,189.00 110,189.00 220,000.00 Date 04-Sep-2013 31-Dec-2016 31-Dec-2016 30-Jun-2022 PHINDPDOTBL  Female beneficiaries (Percentage, Core Supplement) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 24.00 24.00 22.00 Overall Comments Intermediate Results Indicators PHINDIRITBL  Days required to obtain a construction permit from the Maseru City Council (Days, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 106.00 106.00 106.00 30.00 Date 04-Sep-2013 31-Dec-2016 31-Dec-2016 31-Dec-2021 4/11/2017 Page 6 of 9 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Second Private Sector Competitiveness and Economic Diversification Prj (P144933) PHINDIRITBL  Adult population covered by the Credit Bureau (Percentage, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 7.10 7.10 13.00 Date 04-Sep-2013 26-Oct-2016 26-Oct-2016 31-Dec-2021 PHINDIRITBL  Agencies connected to the Trade Automation System (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 0.00 0.00 0.00 4.00 Date 31-Dec-2013 31-Dec-2016 31-Dec-2016 30-Jun-2022 PHINDIRITBL  Registered lodging operations under the star grading system (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 7.00 14.00 14.00 40.00 Date 04-Sep-2013 30-Jun-2016 30-Jun-2016 30-Jun-2022 PHINDIRITBL  Tourism information center established and operational (Yes/No, Custom) Baseline Actual (Previous) Actual (Current) End Target Value N N N Y Date 04-Sep-2013 31-Dec-2016 31-Dec-2016 30-Jun-2022 4/11/2017 Page 7 of 9 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Second Private Sector Competitiveness and Economic Diversification Prj (P144933) PHINDIRITBL  Revenue generated by commercial horticulture farms (maloti) (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 38,606.00 79,264.00 432,000.00 1,948,748.00 Date 30-Apr-2014 30-Jun-2016 28-Mar-2017 31-Dec-2021 PHINDIRITBL  Amount of funds disbursed to businesses through LEAP (Number, Custom) Baseline Actual (Previous) Actual (Current) End Target Value 56,422.00 745,230.00 745,230.00 663,242.00 Date 31-Dec-2013 31-Dec-2016 31-Dec-2016 30-Jun-2022 Overall Comments Data on Financial Performance Disbursements (by loan) Project Loan/Credit/TF Status Currency Original Revised Cancelled Disbursed Undisbursed Disbursed P144933 IDA-53090 Effective XDR 8.70 8.70 0.00 6.06 2.64 70% Not P144933 IDA-59610 XDR 10.00 10.00 0.00 0.00 10.00 0% Effective Key Dates (by loan) Project Loan/Credit/TF Status Approval Date Signing Date Effectiveness Date Orig. Closing Date Rev. Closing Date P144933 IDA-53090 Effective 31-Oct-2013 21-Nov-2013 09-Jan-2014 30-Apr-2019 30-Apr-2019 Not P144933 IDA-59610 24-Mar-2017 -- -- 30-Jun-2022 30-Jun-2022 Effective Cumulative Disbursements 4/11/2017 Page 8 of 9 Public Disclosure Copy Public Disclosure Copy The World Bank Implementation Status & Results Report Second Private Sector Competitiveness and Economic Diversification Prj (P144933) Restructuring History Level 2 Approved on 14-Mar-2016 Related Project(s) P160964-Second Private Sector Competitiveness & Economic Diversification - AF 4/11/2017 Page 9 of 9 Public Disclosure Copy